Weekend Market Commentary: Saturday Edition

September 20th, 2014
in Gary's blogging, Special Post, syndication

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Weekend Market Commentary: Where Are We In This Bull Run?

UPDATED: 1000 EST 2014-09-20

Last week week we pointed out that the market was going to continue to rise and our readers didn't like that 'noise' as the feeling is we are near a market top which will show signs of deterioration by the end of this month.

This I agree is true, but is it possible we will see the markets at or near where they are now for the next year or so before tumbling?

Follow up:

We have been pointing out that there is the 'Elevator Theory' in that those in the falling elevator can not see that there is anything wrong going on and worse do not see the bottom rushing up at an alarming speed. Are there signs there is really a market top and the 'bottom' is only a short step away because we are in an elevator? Is there something we are missing and should know about?

The charts used in the following article are really interesting, informative and more importantly, convincing that there is indeed a problem out there. Just remember, nothing goes up in a straight line except the stock market of course.

Tell-Tale Signs Of A Market Top

  • There are several quantitative and qualitative indicators to watch for an impending market top.

  • Greed knows no bounds and no single indicator can predict the top.

  • A prudent investor can benefit from watching these indicators.

Many investors are curious about knowing if the "QE/Low interest" driven US market has reached a top. Not a day goes by without the reader seeing an article about an impending market collapse. The people who remained on the sidelines for the last 5 years are secretly praying for the market to collapse.

Bull and bear markets are a self-fulfilling prophesy. Higher or lower prices beget further higher or lower prices until the Federal Reserve steps in. So what are the signs of the market top? Does one exist?

First a disclaimer. I do not think that the current market has reached a peak. There are several qualitative and quantitative signs of a market top.

  1. Allocation to equity, coinciding with a maximum allocation to equity.

  2. Real retail sales flatten for several quarters in a row.

  3. The transportation industry doesn't add any more employees.

  4. The unemployment rate of high school graduates with no college education no longer drops and starts edging higher.

  5. Advancers/Decliners ratio, CBOE Put/Call ratio, 52-week high/low ratio all reach a peak.

  6. The percentage change in delinquency rate of commercial loans goes positive.

  7. The sales of heavy weight trucks peaks and starts declining rapidly.

  8. Retail investors aren't afraid of the market any more.

  9. Perennial shorts start throwing in the towel and cover their short position.

  10. Long-term bearish macro analysts give in and start revising their price target upwards.

  11. Very smart investors like Warren Buffett, David Tepper & others start cautioning about absurd market valuations.

There are many, many signs, some more significant than others, but one sign to closely monitor according to Eric Parnell, CFA, is a concern that comes from REITs (NYSEARCA:VNQ).

"After setting fresh new highs only a few trading days ago, REITs have sold off violently in recent sessions, breaking some important technical support levels in the process including the 50-day moving average that has represented reliable support throughout 2014.

Given their traditionally high correlation to the broader U.S. stock market, how REITs respond during any bounce will go a long way in determining whether this is just a blip in an ongoing uptrend or if conditions have changed for the REIT market going forward." Read more >>

Here is the latest VNQ chart here and it should be obvious that falling below 73.00 may have serious ramifications for the stock market by breaking through a support marked by the blue line.

(Chart Here)

This article below produced a few Boos by commentators, but he does get a few points right in that 'it's hard to fight a bull market being driven by endless Fed and central bank money printing. And it's even harder to fight the U.S. stock market, especially when it's become the only place left to find decent yields and enjoy gains. Our economy and markets will face the perfect storm between now and 2019.'

Exactly what I have been saying, except I think the date will be closer to 2017.

Are Bear Markets The New Bull Markets?

  • It's hard to fight a bull market being driven by endless Fed and central bank money printing.

  • Extreme debt levels around the world will prevent any type of market boom from happening.

  • In these late stages of a bubble, even bearish economists and analysts will be mulling around in the bull pen.

. . . it's when more and more people get sucked into the euphoria that you know we're reaching the peak of the bubble. When even the die-hards begin to doubt themselves, that's when the situation is the most dangerous.

Tomorrow in Part II, we will continue why The Top Is Near. Don't get sucked in on any bullish run-ups in the near future, be very cautious. September and early October are generally weak periods for stocks anyway and may or may not be the start of something bigger.

I would guess that there will be some exceptional dips to buy into shortly. What are your thoughts? I would love to hear from you.

"The stock market has recovered so sharply for so long, you have to assume somewhere along the line we will get a significant correction. Where that is, I do not know." - Alan Greenspan, July 30, 2014


(Follow Closing Market Averages at end of this article)

WTI oil closed Friday at 91.68 -0.30    (-0.33%)

Brent oil closed Friday at 98.26 +0.56    (+0.57%)

The Demon The Gold Bears Are Mistakenly Overlooking

Gold closed Friday at 1,217.10 -9.80    (-0.80%)

Copper closed Friday at 3.088 -0.006    (-0.18%)

US Dollar closed Friday at 84.88 +0.48    (+0.57%)

If you would like to get advanced buy/sell tweets, sign-up in the column to the right of this post by clicking on the 'Follow' button. Write me with suggestions and I promise not to bite.

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Written by Gary


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